The Marketing Challenge - Case Study Example

? Marketing Report Table of Contents I. Analysis 3 A. Marketing Challenge 3 B. Internal Analysis 3 B Finance 3 B.2. Marketing 3 B.3. Operations 4 B.4. Human Resources 5 C. PEST 5 C.1. Political Factors 5 C.2. Economic Factors 5 C.3. Social Factors 6 C.4. Technological Factors 6 D. Competitor Analysis 6 E. Consumer Analysis 7 II. Marketing Plan 8 A. Target Market 8 B. 4 P’s 8 B.1. Product 8 B.2. Price 8 B.3. Placement 9 B.4. Promotion 9 C. Financial Feasibility 9 III. Executive Summary 10 A. Marketing Challenge 10 B. Recommendations 11 C. Support 11 D. Conclusion 11 References 13 I. Analysis A. Marketing Challenge The marketing challenge is to grow revenues and to find the perfect marketing mix for the new product to be launched in June, to aid in the achievement of the revenue growth targets for Mackenzie and Marr Guitars (Finnbogason, 2013). B. Internal Analysis B.1. Finance The company is working on a tight cash flow situation, with some budgetary constraints emanating from that cash flow restriction. While they pay suppliers cash, deliveries for orders only occur about 90 days after the payment. This has implications on the ability of the company to convert capital to revenues, and has a bearing too on the ability of the firm to generate cash flow from inventories. Inventories take time to reach the trade, and this compounds the problem of not being able to turnaround capital into cash. All these things besides, the company is still open to increasing the promotions budget from $1,000 to $4,000, and though this is miniscule in comparison to the overall sales target of $1 million dollars for the whole year, from a cash flow perspective this can be a significant amount especially if the revenue targets on a monthly basis are not met, and the margins cannot justify the added promotional expense (Finnbogason, 2013). B.2. Marketing The small amount budgeted for promotions, at just $1,000 a month, is a reflection of the small marketing budget of the company overall, and its reliance on non-traditional marketing strategies such as the extensive use of a single TV blind test challenge, the modest use of endorsers, and the reliance on online marketing and advertising in the main to complement the pure online play of the company, are all reflections of the limited marketing capabilities and resources at the disposal of the firm. On the other hand, where the company lacks muscle in terms of promotions budgets, it makes up for with word of mouth and focusing on the price and the product attributes of the marketing mix for its guitar lines. The main positioning being high quality and low price, this positioning strategy is complemented well by its chosen promotions, place and general advertising strategies (Finnbogason, 2013). B.3. Operations One can glean from the way the company is set up that the online presence handles orders processing including payments processing, while orders fulfillment is done via third party logistics and fulfillment services. Product manufacturing meanwhile is outsourced to suppliers in China. That supplier has enough capacity to be able to run the projected volume sales of 100 guitars per month of Mackenzie and Marr Guitars, but may have problems doing so if any new customers engage them. That aside, the rest of the operations is concentrated on marketing, as well as product design, which are basically handled by the CEO John Marr. The other partner, Jonathan Mackenzie, is understood to have a hands off role in daily operations, leaving that to John. One can see that this operations model leaves the physical handling of the processed goods to third parties, from manufacturing to orders fulfillment, leaving the core operational functions of processing orders and payments, doing the promotions and marketing, doing the strategy work and doing product design work for new launches as the core operational competencies of the company itself (Finnbogason, 2013). B.4. Human Resources Outside of the partners, there are no significant personnel in the organization. All of the third party personnel requirements are handled by the suppliers and the fulfillment companies (Finnbogason, 2013). C. PEST C.1. Political Factors The two major markets of the company are the US, which accounts for a quarter of all sales, and Canada, which in turn accounts for the bulk or three quarters of all sales. The political factors that matter are those that concern these two, together with those factors as they pertain to China, which is the country origin of the products that are manufactured for the firm. The long-term political factors at play here are not significant owing to the political stability of the two major markets and likewise the relative stability of the political regime in China (Finnbogason, 2013). C.2. Economic Factors Being a leisure product, guitars can be the first to go in terms of purchases when economic times get rough, so to speak, and in this case where the economic future is bleak then the future for guitar sales and prospects are also bleak. In the long term though the two major markets are expected to remain economically robust, and the markets therefore for guitar ought to be positively affected by fair economic conditions in the United States and Canada in the medium to long term. In the short term too, with the US and Canadian economies on even keel, one expects that the company should be able to rely on the economy to deliver the goods, if the marketing strategy is sound (Finnbogason, 2013). C.3. Social Factors The two relevant target markets are those who are below 22 and above 15 and those who are over 45 and under 60 years of age, the latter constituting the current target market for the company’s guitars. Those two are the most relevant in terms of social considerations in this analysis. The tastes and interests of the latter group are pretty much set, and guitars have a strong place and a wide acceptance in society as a valid musical form and one that is very popular. The younger group also is entering into this rich social history, but their preferences are not as defined (Finnbogason, 2013). C.4. Technological Factors Of interest are the efficiencies in cost that accrue to Mackenzie & Marr Guitars for relying solely on an online presence to push their products and build their company, where other players have to rely on extensive networks of brick and mortar stores in order to reach customers and realize revenues and profits. The leveraging of online advertising as well as social media likewise further allows the company to level the playing field between it and its competitors through technology. Likewise, advances in logistics allows for the company to source its products from China, at high quality and low costs. These are technological factors that are working in favor of Mackenzie and Marr’s being able to continue operating as a viable concern with good prospects for the future (Finnbogason, 2013). D. Competitor Analysis One can argue that the company’s competitive positioning is unique in the industry, in that it is positioning itself as a credible provider of quality guitars at low prices, whose prices are even lower than other online players who want a similar positioning. It is arguably in a good position to compete with the specialty stores as well as the online play Musician’s Friend or MF, even if it only carries its own line of guitars and has no accessories at present. The big player, Long & McQuade, operates on a very big scale, and has the scale to do that with its large network of physical stores, but this is arguably not a more pressing competitor for Mackenzie and Marr, which has been able to thrive in this competitive landscape. It is MF that is the more relevant competitor, but Mackenzie and Marr is arguably in a good position to compete with MF, given its high quality products, good reputation, and even lower and more competitive prices than MF (Finnbogason, 2013). E. Consumer Analysis The current consumer target market consists of people over 45 and below 60, and these are savvy, experienced customers who know what quality is, and have the income to spend for that quality without worrying too much about price. The other target market consists of presumably the same set of customers in the US, where the potential size is 25 million in comparison to Canada’s 299,000 guitar enthusiasts in the age group. A third consumer target market is made up of young people between 15 and 22, who have less money in all, and are made up of 235,000 people in Canada. On the whole, one can say that there is an equally larger counterpart target market of young people in the US, which the company can target for its new product and current product offerings (Finnbogason, 2013). II. Marketing Plan A. Target Market Assuming that the target market of young people in the States is also ten times the size of the target market of 15-22 year olds in Canada, we are looking at a total potential target market of about 24 million people for the new product, assuming that this target market is well-chosen. The alternative target market is the current target market of guitar enthusiasts over 45. There is merit in looking at this target market too, which may bring the total target market in the vicinity of 50 million people in Canada and the US combined. The advantages of including this older demographic is that the company already has some credibility in this age group, and they can appreciate the quality of the new product to be launched. The rest of the paper though considers a marketing plan where the target market is young people between 15 and 22 years old, as originally planned (Finnbogason, 2013). B. 4 P’s B.1. Product The guitar is of dreadnaught design, with the wood material being mahogany. This material is not inferior but different, with a sound that is characterized as having heightened crispness and brightness. It is to be made in China (Finnbogason, 2013). B.2. Price The price point is $699, lower than the price for the company’s cheapest guitar, the Tofino, which sells for $799. The margin on the other hand, is larger than even the premium Signature Dreadnaught, which has a 50 percent margin, the new product has a 54 percent margin (Finnbogason, 2013). B.3. Placement The retail price is $699, with the target market being young people between the ages of 15 and 22. The distribution channel is purely online, through the company website, complemented by online advertising (Finnbogason, 2013). B.4. Promotion This marketing plan works on the assumption that the promotions budget is to be increased four-fold to $4,000 from $1,000 as planned, on a monthly basis. Given the target market’s age profile, we are able to pare down the alternative promotional platforms to the online plays, given that the magazines that the company has traditionally considered both cater to older audiences. They work for the original target market, but not for the target market for the new product, which would be savvier with online advertising options from Google, as well as from the social media platform Facebook. The third aspect of the promotions strategy to be considered is the use of endorsers. Here the strategy is to employ the same no upfront fee arrangement with endorsers who appeal to this age group of young people, and who have appeal to both Canadian and American audiences. Young country acts may be good candidates for endorsement deals in this regard (Finnbogason, 2013). C. Financial Feasibility At the original $1,000 monthly promotional budget, the company has been able to squeak by, attaining its modest sales targets to date. Moving forward, making use of Google AdWords and Facebook advertising options, while doing away with the magazine subscriptions, the hope is that a four-fold increase in the budget would result in a commensurate increase in the sales of the new product as well as the existing products. Assuming the use of endorsers too, the projection is for the new product to account for 25 percent of sales, or $250,000, taking away 12.5 percent share from the Signature to $375, the Tofino to $300,000 and the Dionisio to $75,000. In this new arrangement, we see that the new sales in effect up the total margin of the company, because the new $250,000 dollars in sales from the new product carries with it a higher margin of 54 percent. Whereas without the new product launch the total average gross margin is 35.5 percent, taking the weighted averages of the margins and sales proportion, with the new product the total average gross margin is 15 + 9 + 2.625 + 13.5 = 40.125 percent. This is higher than the total average margins without the new product launch. The total additional spending for promotions is just $36,000, or $3,000 times 12 months. This is smaller than the projected increase in margins of about $50,000. In all the company benefits from the new product launch, with incremental sales in the subsequent years expected to accrue from the positive impact of the new product to the new target market expected in terms of brand recall and the fostering of positive brand attributes from the new quality and low-cost product. The hope too is that these sales projections are conservative, and that the actual revenues will be larger owing to some focus being placed in the American market as well, with its larger target population (Finnbogason, 2013). III. Executive Summary A. Marketing Challenge The challenge is to meet sales targets for the year, in a profitable way, with the new product launch as the main means to achieve the revenue targets and profitability targets as well. The above marketing plan and analysis bolsters the case for the introduction of the new product, to the specified target market (Finnbogason, 2013). B. Recommendations This paper recommends the adoption of the plan to launch the new dreadnaught product in June, as planned, targeting young people between 15 and 22 in Canada and the US, and making use of online advertising platforms in Google and Facebook to achieve the marketing goals, together with chosen endorsers who appeal to this crowd. The recommended endorsers are young country acts who will not be given upfront fees, and whose fees will also be sourced from the monthly $4,000 budget for promotions (Finnbogason, 2013). C. Support Support activities will come from ad hoc promotional campaigns similar to the blind test comparison on live TV, and making use of the established brand equity among the older target markets for the existing product lines, to further bolster sales and reinforce the credibility of the brand as standing for quality and value (Finnbogason, 2013). D. Conclusion The new product introduction offers a way for the company to increase overall average margins while allowing the company to also achieve its sales target for the year. The additional promotions budget is adequate, versus the forecast increase in total margins that the new product launch will bring \to the firm, and is just right too. The result is higher absolute sales and higher absolute margins than if the company does not introduce the new product. The online play makes business sense, looking at the numbers, and the company is able to realize good profits even without a physical presence or having to compete with existing players in the market fiercely, relying on its time-tested value for money and quality proposition to a new target market (Finnbogason, 2013). References Finnbogason, C. (2013). Mackenzie & Marr Guitars. Richard Ivey School of Business. Read More